Replace the Internal Revenue Service with a National Sales Tax

REPLACING THE INTERNAL REVENUE SERVICE WITH A NATIONAL SALES TAX -- (House of Representatives - May 11, 2004)

Mr. KING of Iowa. Mr. Speaker, I appreciate the gentleman yielding to me and to the contributions of my colleagues here tonight on this subject matter.

It occurs to me as I listen to the gentlemen from Georgia, the offices that I can go to and always get the right price on a small complimentary bag of peanuts, that a person would have to be nuts not to go for this program. And you all know that in Georgia. It is endemic down there. You have had campaigns on it politically and you know the public in Georgia understands how important it is to eliminate the IRS and go to a consumption tax.

We will get most of the questions answered here tonight, but the balance of the questions can be answered at fairtax.org on the Web.

Mr. LINDER. I thank the gentleman for that.

Mr. KING of Iowa. Mr. Speaker, when I put out that Web page, it is important to go there and take a look. There is always another question and another question.

Myself, I would like to announce how I got to this position. It is almost 25 years ago. The gentleman from Georgia (Mr. Burns) addressed how simple and obvious it is. Twenty-five years ago, I got audited one too many times. That one too many times caused me to go back to work fuming after all the time I had lost and money that I had lost, and I still to this day believe I filed everything exactly correctly and honestly and legally. But I went back to work and started with the premise I want to eliminate the Internal Revenue Service and I want to eliminate the Internal Revenue Code.

I did not think too much about how to do it, I just wanted to get rid of it. So I looked at how do we replace that, how do we replace the revenue stream? And there is only one way, and that is a fair tax, a national consumption tax on sales and service. We have heard about that here tonight.

The simplicity of it is impressive. And after weeks and weeks of working this through, answering these devil's advocate questions that I asked of myself, and trying to find people around my neighborhood in 1980 that could answer this, and my colleagues that could answer this, and no one had been thinking about it. They looked at me and said, well, that sounds like a good idea, Steve, but we never heard of that before, therefore it must not have a lot of credibility.

I finally concluded they must know something intuitively about this that was wrong with it that I could not begin to comprehend, so I set it on the side shelf of my mind. I always kept it there as something to think about, but I moved along.

In 1993, I picked up a book and the title was "Fire the IRS," written by Dan Pilla, a former IRS agent. He had done all the research and compiled all the data that I had speculated on myself, and that book clicked with me just exactly.

So I will take you back to the biggest reason why I think we need to eliminate the IRS, and that is this over $1 trillion anchor we drag through our economy. These numbers go back to references in 1985 dollars in Dan Pilla's book. He took the dollars that we have to fund the IRS with, the dollars that we pay our tax preparers, the dollars we pay some people to compile the numbers to go to our tax preparers, and then pay ourselves about $10 an hour to sit up most of the night on the 14th of April, and then the dollars we spend to enforce the Internal Revenue Code. We also go through the litigation process.

And then add to that the cost to our economy of people who make a decision that they are not going to risk any more sweat or any more capital or any more equity, and to try to earn more money for that year because the tax risk is too high.
So they make a decision they are going to pick up their golf clubs or their fishing pole, or spend a little more time with their family and not make that extra sales call, not work those extra overtime hours.

Add all those dollars up that I have described; the disincentive dollars to the actual literal cost, and those 1985 dollars were $720 billion a year. Billion with a B. And if you index that for inflation, that number rolls up to over $1 trillion a year. That is trillion with a T.

And no one, no one has an equation that can evaluate the positive impact on our economy when you take those millions of people that are now working in the regulatory sector, enforcing the IRS and keeping the books and putting the data in. All those bright, creative, productive people out there that are producing something in the nonproductive sector of the economy. They will go find something to do. They are creative. They will come out of that nonproductive sector of the economy and they will do something in the productive sector. They will produce a good or a service that has a value that also is a multiplier in our economy. And that contribution today cannot yet be measured.

So we have this anchor of over $1 trillion. Then, when you add to that the part we cannot measure, it is an anchor that is
substantially over $1 trillion to our economy. To give you an idea of the magnitude of that, in 1992, when Bill Clinton was elected President, he called for the United States Congress to issue a $30 billion economic incentive plan. Some will remember that request that the President made, because we needed to jump-start the economy, by his argument.

Well, Congress negotiated that $30 billion request down to $17 billion, and then he decided, well, that is not enough to make a difference and so he decided to drop the proposal. But it was an idea like we would consider AmeriCorps to be today; make-work projects where you put borrowed money into the hands of people that would be spent in the economy to stimulate the economy.

Well, if $30 billion made a difference to this economy, at least in theory in 1992, borrowed money, think what over $1 trillion injected into our economy in the real productive sector of the economy would do. Not borrowed money, real money, multiplied not just one time borrowed at $30 billion but every year over $1 trillion. We cannot, with our normal on-the-street minds, comprehend the contribution to this economy, the jobs that would create.

And when we look around the world and we see where we stand with this Nation, this economy that is growing thanks to the President's jobs and growth plan, but we are also seeing a balance of trade that is a minus $503 billion a year, and we are seeing our industrial base slide off to overseas where they are paying 68 cents an hour, and they are buying lathes and punch presses and training their people to run them.

Those jobs will be hard to get back, but we get to discount 22 percent on average of everything we sell to these foreign countries when we untax our companies that are producing export products as well as our domestically consumed products. That discount keeps us in that market longer and it holds our industrial jobs here in this country longer. That is good for our blue collar jobs and that is good for the sector of our economy that is starting to decline.

And on the other side of this coin, on the high-tech side, we incent capital formation. We no longer punish productivity or capital formation or savings. So when we untax corporations, businesses, your wages, income of all kinds, interest income, dividend income, pension income, no tax on Social Security income, we untax all of that, and we untax also inheritance tax, that means there is an incentive for capital formation. It will not be sewn into a mattress, it will be invested in something that returns on its investment. And that return will result in increased productivity of the American worker.

So whether that money goes into research and development or capital investment so we get more technology in our factories and in our plants, or whether it goes into higher education, or whether entrepreneurs are able to borrow that money and roll that into a new business, all of these things may be temporarily delayed gratification for the retailers, not much, maybe a little, but in the end it is more money in their pockets.

So when I look at the things we are up against here, this idea ultimately makes so much good sense. Every time I take this Rubik's cube of H.R. 25, or you can find out about it at fairtax.org, and I turn it around and I look at it another way and another way, it looks better, and better, and better. It makes so much sense that I am just going to illustrate the two sectors of the economy that need to take a look at this thing and actually be convinced.

One of them are the retailers. They have a study out, and the gentleman from Georgia (Mr. Linder) and I have sat with people on that study. I think the study shows that about 5 years down the road, there is maybe a half percent decline in total gross retail sales. The premise on that study, it is a 5-year-old-study, by the way, or 4 ½ anyway, some of those premises I will take issue with. I think it starts with a pessimistic base.

Even if they are right, and I disagree with them, but even if they are right, is $1 trillion in the economy not more than enough to overcome that? They assume that money is not going to come out of research and development or higher education.

Mr. LINDER. If the gentleman will yield for a moment, Mr. Speaker, their own study, because the gentleman and I have met with them, shows the economy will grow faster under this system than the current system.

Mr. KING of Iowa. The economy will grow faster.

So when we look at it from that perspective, there are easy answers for the retailers. More money in the hands of people. They will spend that money.

The other question out there is the one that has to do with large investments, annuities, life insurance, and those kinds of issues. And at first I will say the tax structure around those kinds of investments is a tax structure that has been built and evolved around our income tax system. It is a distortion. It is more akin to something today that is not really economic reality. And I think we can take our $1 trillion and inject it into our economy and find a way to transition our way through making adjustments through annuities, life insurance, and those other kinds of long-term investments and tax deductible investments.

And by the way, another concern will be the dollars that go into charitable contributions. Statistics show that 70 percent of the charitable contributions are not itemized deductions anyway. People find a good cause and put their dollars in there without regard to the tax.

Mr. LINDER. Mr. Speaker, I am so glad the gentleman raised that point. I want to throw one thing in here. Seventy-four percent of the money that goes to not-for-profits come from businesses they run. Universities sell hats and mugs, the Red Cross sells blood. Eighteen percent comes from the checks we write, and the rest comes from interest earned on interest-bearing accounts.

People do not give money away to charities just for tax reasons. The great fortunes that have been given away, the Goulds, the Fricks, the Melons, the Carnegies, were given away before 1913. Carnegie funded 2,437 libraries before the Tax Code came into effect. People with a lot of money give it away because they like to give it away.

In 1980, when the value of a charitable contribution's margin was a 70 percent deduction, we gave $48 billion to charity.
Over several tax changes since then, the value of charitable giving has dramatically declined, and last year we gave nearly $200 billion to charities. People give money away if they have more money. If they have more money in their pocket, we will put more money in their pocket.

Mr. KING of Iowa. Mr. Speaker, if the gentleman will continue to yield, that is the answer to charitable contributions.

There is an answer to every single aspect of this. Every time we look at this Rubik's cube it looks better and better and better.

Also, the corporations that have moved offshore to avoid the taxes in United States of America will come back to this country, many of them, and other corporations will move to the United States. An example would be Ireland. They untaxed corporations in Ireland for a period of 10 years, and they ended up with 560 American corporations domiciled in that little island of 4 million people. So imagine multiplying this across this huge continent of almost 300 million people.